Question

Freemore Company has the following sales budget for the last six months of 2018: July $205,000 October $187,000 August 168,000 November 200,000 September 205,000 December 182,000 Sales are immediately due, however the cash collection of sales, historically, has been as follows: 55% of sales collected in the month of sale, 35% of sales collected in the month following the sale, 7% of sales collected in the second month following the sale, and 3% of sales are uncollectible. Cash collections for October are ________.

Answer 1

Answer:

Cash collections for October are $174,600

Explanation:

The following information are given for the amounts collected on sales:

month of sale = 55%

month following sale = 35%

second month following sale = 7%

sales uncollectible = 3%

For the month of October, the cash collections will be from July and October sales.

From July sales

October is the month following July sales, therefore, 35% of the sales from July will be collected in October.

July sales = $205,000

percentage collected in October = 35% = 35/100 = 0.35

∴ cash collected in October from July sales = 0.35 × 205,000 = $71,750

From October sales

55% of sales is collectible in the month of sales

Sales in October = $187,000

55% = 55/100 = 0.55

∴ cash collectible from October sales = 0.55 × 187,000 = $102,850

∴ Total cash collections in October = cash from July sales + cash from October sales

=  71,750 + 102,850 = $174,600